Trade Secret | Noncompete – Issues and Cases in the News – March 2012

It’s time for this month’s Trade Secret | Noncompete Issues and Cases in the News.

Trade Secrets on the Internet: In the most recent case to address the issue of the effect of trade secrets being available on the Internet, the United States District Court for the Western District of Ohio reasoned as follows:

Absent from the Complaint is any allegation that Plaintiff made efforts to guard the secrecy of the information about its products. Instead, it appears from the limited record before the Court that Plaintiff has published this information on the Internet. Under these circumstances, the Court finds that Plaintiff has little likelihood of success on the merits of its Ohio Trade Secrets Act claim.

Idaho: A bill to amend the Idaho trade secrets act has been introduced before the Idaho state Senate. If adopted, the bill will clarify that physical retention of a trade secret can be misappropriation, while mere memorization cannot be. (Whether trade secrets can be misappropriated by memory is a thorny issue, about which there is much disagreement nationally – seeIt’s All in Your Head.) The bill also creates an entitlement to legal fees for the prevailing party, and makes persons acting in concert with a misappropriator jointly and severally liable if they turn a blind eye to the misappropriation.

Massachusetts: Massachusetts Superior Court Judge Lauriat was the latest to find that a material change in the terms of employment (even changes that are beneficial for the employee) when “coupled with an employee’s refusal to sign a new covenant at employer’s request” will vitiate a preexisting noncompete agreement. The teaching of these cases? Noncompetes should be drafted to anticipate the possibility of change and expressly apply to any new position; and care should be taken when asking for a new agreement to make clear what is to happen with the old agreement if the new one is not accepted.

New Hampshire: The New Hampshire legislature is considering a bill (HB 1270) that would require employers to disclose the requirement of a noncompete or non-piracy agreement before hiring an employee or changing the employee’s job classification. See Seacoast Online’s, Bills ‘crossover’ in coming weeks. If passed, the bill would amend the law to provide as follows:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.

Utah: The Utah Court of Appeals issued a lengthy decision (CDC Restoration & Construction LC v. Tradesmen Contractors, LLC) covering two issues that occasionally arise in trade secret cases: (1) the circumstances under which a compilation of publicly available information will be deemed a trade secret; and (2) whether and which common law causes of action are preempted by the Uniform Trade Secrets Act.

With regard to when a compilation may qualify as a trade secret, the Court (quoting the Utah Supreme Court) held, “A compilation may qualify as a trade secret ‘if extensive effort is required to pierce its veil by assembling the literature concerning it and thereby uncover its parts’; on the other hand, ‘[i]f this can be readily done by one who is normally skilled in the field and has a reasonable familiarity with its trade literature, the secret may no longer be entitled to protection.'” It’s analysis of the particular facts in the case is worth a read.

Of particular note about the preemption issue is the Court’s observation in its conclusion, as follows:

With respect to its claim for misappropriation of pricing information, CDC finds itself boxed in by the UTSA. CDC lacks evidence hat the pricing information it claims [defendants] misappropriated qualifies as a trade secret under the UTSA. Yet that information is enough like a trade secret that CDC’s non-UTSA claims are preempted by the UTSA. The UTSA does not displace civil remedies not based upon misappropriation of trade secrets, nor does it displace contractual remedies, whether or not based upon misappropriation of trade secrets. However, CDC’s non-UTSA causes of action fit nether category. The are, accordingly, preempted.

The Court’s preemption analysis leading to this conclusion and observation about the effect of preemption, is far more involved and definitely worth a read.

Criminal Cases:

There has been a lot going on with recent focus on the Economic Espionage Act. But, the big news recently was the Second Circuit’s decision to overturn the conviction of Sergey Aleynikov, the computer programer convicted of stealing Goldman Sachs’s high-frequency trading code. SeeHe Took the Code, but Was it a Federal Crime?

Game developer Zynga, Inc. convinced the U.S. District Court for the Northern District of California to dismiss the trade secret misappropriation claim brought against it, but other claims are not preempted will go forward. Decision here; story here.